U.S. fiscal uncertainty, China’s credit growth pose risk to Asia: IMF
China’s speedy domestic credit growth and United States of America’s lack of clarity about the size of fiscal stimulus are amid risk that cloud Asia’s economic position, said senior official International Monetary Fund (IMF).
IMF Director Furusawa illustrated in a speech at a seminar in Tokyo on the region’s fiscal policy and demographics that growing interest rates by U.S Federal reserve could generate major rise in dollar which increase debt burden on Asian emerging economies. Asia continues to be the world leader in growth helped by stronger demand and accommodative policies.
“Nonetheless, the near-term outlook is clouded with significant uncertainties and risks,” such as a lack of clarity on U.S. economic policy including the size and composition of President Donald Trump’s proposed fiscal stimulus.
Furusawa further said China’s rebalancing process continues, but growth remains reliant on rapid domestic credit growth that could cause problems down the road.
Asian policymakers could tackle such demographic challenges through reforms to curb health care and pension system costs, providing tax incentives to raise labor force participation, and compiling credible medium-term fiscal plans to ensure debt sustainability, he said.
Furusawa called on Asian policymakers to adapt their fiscal policies to engage slowing population growth and rapid aging in the region. Asia’s population growth is projected to fall to zero by 2050, with the ratio of the elderly to working-age population reaching 2-1/2 times its current level.
“Experience shows that it is important to adapt fiscal policies before aging sets in. This should occur at a gradual pace in order to spread the burden across generations and to avoid policy reversals,” he said.
Sanjeev Gupta, deputy director of the IMF’s fiscal affairs department, delivered the prepared speech on behalf of Furusawa, who could not attend the seminar because his flight had been canceled.
Furusawa, who could not make it to the seminar because his flight had been, canceled so Sanjeev Gupta deputy director IMF’s fiscal department delivered the speech on behalf of Furusawa.